Give Us More Money! - 28 February, 2003

Wild discussions pertaining to the contents and dates of the Russian bank reform has gradually calmed down. Both the Russian government and the banking community of the country perfectly realize the need of fundamental changes in the field. However, it turned out that the aspiration to take immediate actions is somewhat premature. Indeed, in order to reform the banking system, one is supposed to have this system first. If the total capital of all Russian banks is equal to the capital of a couple of major European banks, this does not seem to be inspiring at all.

The discussion pertaining to the state policy in the field of the banking system development of the Russian Federation took place in Moscow yesterday. President of the Russian Banks Association Garegin Tosunyan shared his cheerless view of the situation in the Russian bank field. As he said, the economic efficiency of Russian banks makes up only two percent. The president of the Russian Banks Association gave adequate indexes of the manufacturing industry and trade for comparison: 15% and 40% respectively. Russian banks could have tons of money at their disposal, so why are they satisfied with such meager numbers? As Garegin Tosunyan thinks, the state is guilty of that, for the low efficiency of the banking sector is caused with the imperfection of the Russian law in the field. Tosunyan stated that bankers advised the state, what should be done in order to change the situation for the better. However, officials treat bankers’ suggestions rather carefully, suspecting them of lobbying their personal interests. As it turns out, the Russian Banks Association cares for the fate of the bank field on the whole.

Garegin Tosunyan believes that the state is supposed to solve the minimum of three problems in order to make Russian banks work well. According to the banker, the Russian government should attract funds for long-term lending. The second problem is about mandatory reservation fund. The third problem touches upon the issue of bank risks reservation. Mr. Tosunyan based his assertions on the analytical research of Russian Banks Association specialists. According to experts’ estimates, the mandatory reservation fund receives up to ten percent of funds, which is way too much. This index is a lot lower in Europe – only two percent. According to statistics, the demand balance of Russian banks in mandatory reservation funds makes up 190 billion rubles at present, while the demand balance on loro accounts makes up 100 billion rubles (45 billion of them falls for Moscow). As a matter of fact, it is not correct to compare the banking system of the European Union with the one of the Russian Federation. Furthermore, Mr. Tosunyan should think of the problem in another perspective. If Russian banks offered the same range of banking services and guarantees to Russian citizens, as European banks do, the economic efficiency issue would probably not be that actual for Russian bankers.

Mr. Tosunyan thinks that the given problem can be solved by means of uniting the mandatory reservation fund and loro accounts reservation. As he believes, this will allow to gain up to 150 billion rubles a year. This money can be used for crediting the real sector of the Russian economy, banks are rather interested in that. On the other hand, what have Russian banks done to make the real sector crediting accessible and attractive to the enterprises of the real sector? The major problem of the real sector crediting in Russia is the absence of low interest long-term loans. However, Russian banks do not want to put themselves at risk with long-term loans, on which they can hardly make any profit. This makes the economic efficiency suffer. Yet, Garegin Tosunyan explains all long-term crediting problems with obstacles that the Russian state puts up. He believes that the state does not let private Russian banks to gain access to pension, insurance and budget funds. This is exactly the “long” source to obtain the money from. Mr. Tosunyan does not see any alternative to that money for some reason, expect for very expensive loans from the Central Bank. What about earning some? Until the year 1998 Russian commercial banks had a better access to budget and pension funds. However, the financial crisis made all of that money vanish, and no one compensated the state for those losses. Garegin Tosunyan was an outstanding banker before the default happened in 1998, so he is perfectly aware of everything. He just does not want to think about it, although he definitely should. It goes without saying that there is a reason for the state to treat private commerce banks with such distrust.

The Russian parliament does not trust Russian banks either. Valery Goreglyad, first deputy chairman of the Federation Council, said that the Russian banking system is not at all ready to joint World Trade Organization countries. It hardly ever occurs to a common Russian person to save money in a bank. If foreign banks come in the country after Russia becomes a WTO member, there will be no such people at all. What is going to happen to the economic efficiency then? In the words from Valery Goreglyad, the Russian banking system had to face the low liquidity, and the small own capital problems after the financial crisis in 1998. Russian banks simply dumped both the state and the Russian population in 1998. There are too many people, who remember that. However, the Finance Ministry and the Central Bank did not manage to make Russian banks provide a reliable guarantee for people’s deposits. If there is something to substitute guarantees, one is not supposed to count for the increase of deposits. Russian bankers can hope for their ability to talk the state into creating favorable conditions for them. Valery Goreglyad also stated that the banking system of Russia is very similar to the one of East Europe. They have already realized there that it was a wrong way to go. The official advised Russian bankers to search for their own way of development, which would take account of the Russian banking system peculiarities, as well as of the specific way of running business in Russia. What else can be advised then?